Insurance News magazine August/September 2026

The fallout from Defence’s forever war

How the government’s PFAS litigation could reshape insurers’ attitudes to environmental risk

By Claire Heaney

The Commonwealth government’s landmark litigation over so-called forever chemicals could have major knock-on effects for the insurance industry, a leading law firm warns.

In the largest legal case brought by the government, it is suing 3M Australia and US-based 3M Company over contamination linked to legacy firefighting foam containing per- and poly-fluoroalkyl substances (PFAS). 3M says it will fight the allegations.

Revelations about the extent of contamination at 28 Defence Force sites around Australia have often been driven by media and public exposure.

While the focus is on the Defence Department – which says it has so far spent $1.3 billion on management, remediation and research – PFAS have been widely used in aerospace, construction, food processing and clothing manufacture, among other industries.

Global law firm Clyde & Co’s managing partner Jenny Thornton says 3M is likely to be a test case for how the insurance market manages large-scale, legacy environmental exposures, and it may shape underwriting, policy drafting and claims strategy for years to come.

Perth-based Ms Thornton tells Insurance News that in most cases involving PFAS, the central challenge is causation.

“That is proving that contamination can be traced back to a particular source. This can be particularly challenging given how PFAS can move through soil and groundwater over time and can be traced back to use over certain time periods,” she says.

“That issue will still be relevant here, and the Commonwealth may rely heavily on expert environmental evidence to establish how contamination arose and spread across Defence sites.”

She says allegations against 3M regarding misrepresentation and disclosure go further. If the Commonwealth’s claims can be substantiated, the case becomes less confined to purely technical questions about environmental expert evidence and more focused on what was known, when it was known and what was communicated to end users.

“The Commonwealth will likely need to establish a clear link between the use of 3M’s products and the contamination identified, as well as provide a coherent picture of the historical environmental baseline at those sites.

“Given the longevity and mobility of PFAS, reconstructing that history can be complex and dependent on expert evidence.”

More broadly, Ms Thornton says that given contamination spans decades, often from the 1970s through to the early 2000s, insurers may find themselves dealing with policies written many years ago, before risks were fully understood.

It creates complexity around policy interpretation, such as occurrence-based triggers, aggregation of losses and allocation across multiple policy periods.

“It also raises questions about whether these risks were ever properly contemplated or priced at the time, which can lead to coverage disputes and reserve uncertainty,” Ms Thornton says.

“From a claims perspective, PFAS litigation introduces a particularly challenging risk profile because contamination is widespread and mobile, losses can evolve over long periods, and causation is often difficult to isolate.”

The difficulty quantifying exposure increases the likelihood of protracted, expert-driven disputes, which in turn drives up defence costs and settlement values.

“Looking prospectively, cases like the 3M matter may influence how insurers approach emerging risks and may result in increased use of specific PFAS exclusions, tighter wording around pollution and environmental liability, and more scrutiny at the underwriting stage, particularly for industries with historical PFAS use,” Ms Thornton says.

In the recently released report Australia’s Emerging PFAS Regime: What the 2025 Reforms Mean for Government, Industry and Insurers, Ms Thornton says PFAS have moved from being relatively obscure industrial chemicals to a recognised environmental and public health concern, but the extent of that risk is still evolving.

“One of the key difficulties is that PFAS don’t behave like many traditional contaminants,” the report says. “They are often described as ‘forever chemicals’ because they are highly persistent and mobile, meaning they can migrate through soil, groundwater and surface water over long distances.

“Once released, they don’t readily break down, and they can spread well beyond their original source.” The Defence Department’s April PFAS update said it had treated or removed 200,000 tonnes of contaminated soil and treated 13 billion litres of water as part of ongoing management at sites around Australia.

Exposure pathways can change over time, and affected communities may extend well beyond the original site of use.

While Australia has made significant progress in its regulation of PFAS, through the introduction of tighter drinking water guidelines and national bans last year on manufacture and importation of key PFAS chemicals, Ms Thornton says the question is why it took so long.

“There was clear scientific and regulatory awareness of PFAS risks from the early 2000s, including guidance from Australian regulators identifying environmental concerns and recommending limitations on certain uses.

“Despite this, the transition from guidance to enforceable restrictions was gradual, with more decisive measures such as state-level bans and, ultimately, national controls emerging over a much longer time frame.”

The European Union and the United States began implementing restrictions and phaseouts of PFAS earlier, reflecting a more precautionary regulatory trajectory, Ms Thornton says.

“Australia, by contrast, has moved in a more incremental way, with its comprehensive national framework only recently coming into effect in 2025.”

Ms Thornton says companies need to undertake baseline environmental assessments of any land they occupy, lease or acquire before they start operations.

This is critical because it gives the company a clear, documented picture of environmental conditions.

Companies need to be clear if contamination pre-dated their involvement, arose from their operations or migrated from an external source.

A baseline assessment helps address that by establishing if PFAS are present and providing a defensible record that can be relied on in any future dispute.

“From a litigation perspective, that becomes highly valuable,” Ms Thornton says.

“As we’ve discussed, causation is often the central issue in PFAS claims. Being able to point to contemporaneous evidence of site conditions significantly strengthens a company’s ability to challenge allegations that it caused or contributed to contamination, and demonstrate that any contamination was pre-existing or attributable to another source.”

Ms Thornton says in addition to baseline and ongoing monitoring, companies need to review supply chains and product specifications, maintain clear records of chemical use and disposal, and educate about evolving regulatory requirements.

Late last year, QBE national manager, technical and business Trent Koenig told a Q Academy Emerging Risks in the Liability Market webinar that most brokers will have customers with some exposure, directly or indirectly, somewhere in the supply chain.

He said PFAS exclusions are becoming more common in liability policies, underwriters will be asking more questions about the risk, and businesses will need to show strong risk management to secure cover.

The webinar heard that while there have been few insured losses, several forces are amplifying PFAS risk globally and in Australia.

These include escalating litigation, tightening regulation and public and investor scrutiny.

“We encourage brokers to start the conversation – explore where PFAS might appear and support customers with risk management strategies,” Mr Koenig told the webinar.

He said PFAS exclusions are increasingly coming up in insurance contracts.

“For example, common exclusions mean standard general liability policies won’t cover pollution that isn’t sudden or unexpected,” he said. “So for any business that’s historically used PFAS, there could be an exposure arising from the gradual nature of pollution by PFAS that they’re not currently covered for.”

The webinar pointed to strategies such as mapping PFAS exposure, updating proposal forms, gathering documentation around PFAS use and clarifying cover.